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Kansas Revenue Secretary: AG's Wayfair Opinion Creating Confusion

Posted on Oct. 17, 2019

Some attorneys representing remote sellers are contacting the Kansas Department of Revenue to say their clients won’t register to collect sales and use tax yet, citing a recent opinion from the state attorney general’s office.

“Some companies won’t register until after the first of the year, if then,” Revenue Secretary Mark Burghart said in October 16 comments to the Governor’s Council on Tax Reform.

Burghart provided the panel with a written update on the status of the DOR guidance (Notice 19-04) requiring out-of-state sellers to collect sales and use tax effective October 1, even though Kansas has not enacted economic nexus thresholds.

In that update, Burghart said the release of Attorney General Opinion No. 2019-8 — the nonbinding legal opinion in which the attorney general declared the DOR’s notice void — “has created confusion with out-of-state retailers and could negatively impact the number of registrations and compensating tax payments.”

Senate Minority Leader Anthony Hensley (D) asked Burghart to elaborate.

Burghart said the DOR has had some contact with attorneys representing out-of-state companies “essentially not wanting to register until after the first of the year,” with the thinking being that the Legislature is likely to address de minimis thresholds and marketplace facilitator requirements in the 2020 session. Earlier this year Gov. Laura Kelly (D) vetoed legislation with such provisions for reasons unrelated to remote seller issues or the U.S. Supreme Court's decision in South Dakota v. Wayfair Inc.

Burghart said the DOR's notice "did nothing more than publicize the Wayfair decision," describe how the state's long-standing statutory language allowing Kansas to require sales and use tax collection by remote sellers to the extent allowed under the U.S. Constitution now applies, and provide instructions for registering with the state. 

Burghart highlighted the increases in voluntary registration. He said gross use tax receipts are up $14 million for the first quarter of fiscal 2020, due in part to increased compliance by remote sellers; more than 3,200 remote sellers registered with the state after Wayfair was decided, and 600 of those did so after the DOR issued its notice on August 1. 

Burghart added that when the DOR was drafting its notice, it assigned 20 staff members to handle the calls that would come in, but didn’t wind up getting the anticipated huge volume of questions.

“I think the community understands the significance of the Wayfair case and their obligations to collect and remit, and that’s why they’re doing it voluntarily,” Burghart said.

Burghart pointed out that the DOR and the attorney general agree that Wayfair did not establish specific parameters required under the commerce clause before a state can require remote sellers to collect tax. “Wayfair did not expressly hold that a statutory ‘safe harbor’ based on the value of goods or services sold or number of transactions is required by the commerce clause,” he said.

Burghart added that Wayfair "held only one thing: It held that the physical presence requirement that had previously been established in the National Bellas Hess case and the Quill case was no longer going to be the law of the land.” At that point, there no longer was a constitutional impediment to Kansas enforcing the statutory requirements it adopted in 2003, he said.

“We are obligated to enforce the law that, quite frankly, was overwhelmingly passed by the Legislature, and have moved forward with that,” Burghart said, adding that the provisions in question "are plain, unambiguous, and self-executing.”

While the attorney general's office had agreed that Kansas law authorizes the DOR to impose collection obligations to the extent the U.S. Constitution permits application of the state statute, it disagreed that Kansas could enforce the law without enacting "a standard for determining which out-of-state retailers those are,” noting that "what constitutes de minimis contacts has not been determined at this time.”

Burghart said he is not particularly concerned about litigation over the DOR’s enforcement of remote seller collection obligations; he repeated his arguments that the state's membership in the Streamlined Sales and Use Tax Agreement significantly reduces or eliminates burdens to small sellers. Burghart said his greater concern is about the consequences of selectively enforcing Kansas law against only in-state sellers now that the constitutional impediments to requiring remote sellers to collect have been lifted.

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